Technology Forces on Community Banks: What’s a Bank to Do?

Small banks need to pursue mobile-based technology and innovation in order to remain relevant.

Small banks excel at customer service and are very customer-centric. In many cases branch staff and leaders know customers by name. This has been the hallmark of community banking for generations. With the world of bank customers rapidly changing, is the branch-centric, face-to-face interaction model enough to retain existing customers and gain new ones? I have my doubts.

Bank customers, both consumers and small businesses, are using technology in myriad ways every day -- from reading email and browsing the web to buying concert tickets, receiving or transferring money, and tracking personal spending. And more people are using mobile devices. According to a 2013 Pew Research report, as of June 2013, 56% of US adults are smartphone users, and the number is growing rapidly. Moreover, a Bain & Company article on mobile payments cites 25% of users are shopping on mobiles, with another 15% willing to try. We should expect more people wanting to use their mobile devices to conduct their banking business.

While some small banks are offering access to their services via mobile devices, many have yet to do so. These banks need to develop plans to increase their use of technology, centered on mobile, which will gain a lot more and happier customers. Here’s an approach to help bank executives develop those plans.

First is the analysis phase. Banks should analyze their customers’ technology usage and preferences. If possible, treat consumers and business customers separately, since their needs are different. For consumers, look not only at assets and net worth but also generational categories. While Millennials may not be big customers today, they will be tomorrow. And Gen X folks are buying cars and homes, establishing college savings and retirement plans now. These are great long-term bank customers. For business customers, consider their business types. For example, do they allow their customers to transact business using a mobile device? If this examination doesn’t yield enough insight, consider surveying your customers to learn their technology usage. This analysis will give bankers a picture of how your customers want to conduct business using technology.

Next, examine what your institution has in place for electronic access. Does your online banking system work well only with a PC? Is it cumbersome to access a checking account via a smartphone? Look at the various consumer and business services you offer through technology channels. If the institution’s online offering is narrow, you’ll want to expand it. For example, Needham Bank, a Boston-area-based community bank, offers a broad range of services via mobile technology, including its own mobile banking smartphone application, text message banking, and online appointment scheduling.

Lastly, develop institutional plans to deploy more mobile-based technology access to your institution’s services. Implement your plan in phases, each centered on a particular use case -- for example, text message banking or P2P (person-to-person) payments. Since most, if not all of these will require access to the core banking system, each will require separate integration efforts; plan for it. If your institution can implement multiple phases simultaneously, do so.

New, tech-based companies are encroaching on the banking space by offering easy-to-use services such as mobile payments (e.g., Square), small business lending (e.g., Kabbage), and personal financial management (e.g., Hellowallet). Small banks must move ahead with offering mobile-based technology access to bank services or risk losing customers who will never return.

Robert Johnson is Senior Director of Strategic Intelligence at Atrion Networking Corp., where he's responsible for market analysis and growth strategies. Robert is a veteran of the IT industry, having held executive positions with CGI Inc., Deloitte ... View Full Bio

It's smart to separate groups of customers and cater to the needs of each one, but I agree with Jon that community banks will struggle to attract Gen Y customers that value new technologies over face-to-face interaction. It'll be tough to lure those customers away from bigger banks that offer more tech-driven services.

Community banks have a tricky path to getting Gen Y customers. They find the new players that you mentioned in the article very attractive and demand the kind of technology-driven products and services that they can get from those players, and from the biggest banks that have the bigger technology budgets. And Gen Y consumers have little interest in the branch-centric model that community banks have offered for years.